Money Sense: Deductibility of Home Payments





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    • Tax time is still several months off, but planning for your yearly tax returns is a good idea, no matter what time of year it is. So, now is a good time to take a look at the largest tax deduction most people have – payments made on their home. The question, of course, is: which of those payments are deductible?

    • Mortgage interest – Under the current tax rules, you can deduct, with some exceptions, the interest paid on up to $1million of mortgages used to buy, build or substantially improve your primary residence or vacation home, as well as interest paid on up to $100,000 of home equity debt.


    • Property taxes – You can deduct the full amount of property taxes you pay on your primary and vacation homes each year.


    • Mortgage prepayment penalties, mortgage insurance and late fees – Prepayment penalties are considered interest, so they’re deductible, but mortgage insurance payments are not. As for late fees, if the fee is calculated as interest paid for each day your payment is late, it’s deductible, but if the mortgage simply charges a flat rate for late payments, it’s not.


    • Home repairs and improvements – Money spent to repair your primary home and, in most cases, your vacation home, is not tax deductible. However, if you take a home equity loan to pay for repairs, the interest paid on that loan is usually deductible.


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